The Companies (Mergers and Divisions) Regulations 1987

Made: 23rd November 1987

Coming into force: 1st January 1988

Now, therefore, the Secretary of State, being a Minister designated for the purposes of section 2(2) of that Act in relation to matters relating to mergers and divisions involving public companies[^f00002], in exercise of the powers conferred by that section hereby makes the following Regulations—

Citation and Commencement

1

These Regulations may be cited as the Companies (Mergers and Divisions) Regulations 1987, and shall come into force on 1st January 1988.

Amendment of Companies Act 1985

2

The Companies Act 1985[^f00003] shall be amended as follows—

• (a) by the insertion after section 427 of the new section 427A contained in Part I of the Schedule hereto;

• (b) by adding at the end of section 711(1) the following paragraphs—

(s) any copy of a draft of the terms of a scheme delivered to the registrar of companies under paragraph 2(1) of Schedule 15A, (t) any copy of an order under section 425(2) or section 427 in respect of a compromise or arrangement to which section 427A(1) applies.

• (c) by the insertion after Schedule 15 of the new Schedule 15A contained in Part II of the Schedule hereto.

SCHEDULE — PROVISIONS TO BE INSERTED INTO THE COMPANIES ACT 1985

PART I — New section 427A to be inserted after section 427

Application of ss.425—427 to mergers and divisions of public companies.

427A

• (1) Where—

• (a) a compromise or arrangement is proposed between a public company and any such persons as are mentioned in section 425(1) for the purposes of, or in connection with, a scheme for the reconstruction of any company or companies or the amalgamation of any two or more companies,

• (b) the circumstances are as specified in any of the Cases described in subsection (2), and

• (c) the consideration for the transfer or each of the transfers envisaged in the Case in question is to be shares in the transferee company or any of the transferee companies receivable by members of the transferor company or transferor companies, with or without any cash payment to members,

sections 425 to 427 shall, as regards that compromise or arrangement, have effect subject to the provisions of this section and Schedule 15A.

• (2) The Cases referred to in subsection (1) are as follows—

Case 1

Where under the scheme the undertaking, property and liabilities of the company in respect of which the compromise or arrangement in question is proposed are to be transferred to another public company, other than one formed for the purpose of, or in connection with, the scheme.

Case 2

Where under the scheme the undertaking, property and liabilities of each of two or more public companies concerned in the scheme, including the company in respect of which the compromise or arrangement in question is proposed, are to be transferred to a company (whether or not a public company) formed for the purpose of, or in connection with, the scheme.

Case 3

Where under the scheme the undertaking, property and liabilities of the company in respect of which the compromise or arrangement in question is proposed are to be divided among and transferred to two or more companies each of which is either—

• (a) a public company, or

• (b) a company (whether or not a public company) formed for the purposes of, or in connection with, the scheme.

• (3) Before sanctioning any compromise or arrangement under section 425(2) the court may, on the application of any pre-existing transferee company or any member or creditor of it or, an administration order being in force in relation to the company, the administrator, order a meeting of the members of the company or any class of them or of the creditors of the company or any class of them to be summoned in such manner as the court directs.

• (4) This section does not apply where the company in respect of which the compromise or arrangement is proposed is being wound up.

• (5) This section does not apply to compromises or arrangements in respect of which an application has been made to the court for an order under section 425(1) before 1st January 1988.

• (6) Where section 427 would apply in the case of a scheme but for the fact that the transferee company or any of the transferee companies is a company within the meaning of Article 3 of the Companies (Northern Ireland) Order1986 (and thus not within the definition of “company” in subsection (6) of section 427), section 427 shall apply notwithstanding that fact.

• (7) In the case of a scheme mentioned in subsection (1), for a company within the meaning of Article 3 of the Companies (Northern Ireland) Order 1986, the reference in section 427(5) to the registrar of companies shall have effect as a reference to the registrar as defined in Article 2 of that Order.

• (8) In this section and Schedule 15A—

• “transferor company” means a company whose undertaking, property and liabilities are to be transferred by means of a transfer envisaged in any of the Cases specified in subsection (2);

• “transferee company” means a company to which a transfer envisaged in any of those Cases is to be made;

• “pre-existing transferee company” means a transferee company other than one formed for the purpose of, or in connection with, the scheme;

• “compromise or arrangement” means a compromise or arrangement to which subsection (1) applies;

• “the scheme” means the scheme mentioned in subsection (1)(a);

• “company” includes only a company as defined in section 735(1) except that, in the case of a transferee company, it also includes a company as defined in Article 3 of the Companies (Northern Ireland) Order1986 (referred to in these definitions as a “Northern Ireland company”);

• “public company” means, in relation to a transferee company which is a Northern Ireland company, a public company within the meaning of Article 12 of the Companies (Northern Ireland) Order 1986;

• “the registrar of companies” means, in relation to a transferee company which is a Northern Ireland company, the registrar as defined in Article 2 of the Companies (Northern Ireland) Order 1986;

• “the Gazette” means, in relation to a transferee company which is a Northern Ireland company, the Belfast Gazette;

• “Case 1 Scheme”, “Case 2 Scheme” and “Case 3 Scheme” mean a scheme of the kind described in Cases 1, 2 and 3 of subsection (2) respectively;

• “property” and “liabilities” have the same meaning as in section 427.

PART II — New schedule 15A to be inserted after schedule 15

Signed

Francis Maude — Parliamentary Under Secretary of State, — Department of Trade and Industry — 23rd November 1987

Explanatory note

(This note is not part of the Regulations)

These Regulations implement Council Directive No. 78/855/EEC concerning mergers of public limited liability companies (OJ No. L295, 20.10.1978, p. 36) and Council Directive No. 82/891/EEC concerning the division of public limited liability companies (OJ No. L378, 31.12.1982, p. 47). The mergers and divisions in question involve the transfer of the undertaking, property and liabilities of public companies (“transferor companies”) to other public companies or, in some cases, companies (whether or not public) formed for the purpose of the merger or division (“transferee companies”) in exchange for shares in the transferee companies receivable by shareholders of the transferor companies with or without an additional cash payment. These mergers and divisions may take place in the United Kingdom by means of compromises or arrangements governed by sections 425 to 427 of the Companies Act 1985. These Regulations amend the Companies Act 1985 by inserting a new section 427A and a new Schedule 15A. The new section provides that in the case of the mergers and divisions described in it sections 425 to 427 shall have effect subject to the provisions of that section and of Schedule 15A.

Schedule 15A provides, in particular, that the court may only sanction a compromise or arrangement under section 425 if—

• (i) three-quarters of each class of the shareholders of the transferee companies involved present at a meeting agree (section 425 already provides that three-quarters of the shareholders of the transferor companies must so agree) (paragraph 1);

• (ii) the draft terms of the merger or division were drawn up by the directors of the companies involved and published by the registrar of companies (paragraph 2);

• (iii) directors' reports containing specified information were drawn up (paragraphs 3 and 4);

• (iv) expert’s reports containing specified information were drawn up by independent experts (paragraphs 3 and 5); and

• (v) the above documents, the relevant company accounts and, if no recent accounts are available, accounting statements, were made available to shareholders (paragraphs 3 and 6).

Paragraph 9 provides that the court must fix a date on which the transfer of the undertaking and, if the transferor company is to be dissolved, its dissolution will take place and paragraphs 10 to 14 provide for a variety of circumstances in which some of the requirements as to meetings and preparation of documents may be dispensed with. Paragraph 15 provides for the liability up to a limit of transferee companies involved in a division for liabilities transferred to but defaulted on by other transferee companies.

The provisions of section 427A and Schedule 15A do not apply where the company in respect of which the compromise or arrangement is proposed is being wound up nor to compromises or arrangements in respect of which applications to the court were made before the Regulations came into operation (section 427A(4) and (5)). They do apply where any of the transferee companies is a company within the meaning of Article 3 of the Companies (Northern Ireland) Order 1986 (section 427A(7)).

Footnotes

[^f00001]: 1972 c. 68.

[^f00002]: S.I. 1985/749.

[^f00003]: 1985 c. 6.